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Recycling branded goods – making big profits on the Achilles heel of big brands?

The article with the title: “Recycling branded goods – making big profits on the Achilles heel of big brands?” written by Lawyer Nguyen Thi Hong Hoa – Phuoc & Partners is published on Saigon Economic Times dated 01/05/2014.

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Branded Goods – whether second-hand or brand new

A multinational fashion company specializing in luxury goods was taken by surprise to see certain company branded goods for sale before they were supposed to be launched in the market. This was especially astounding seeing as these were not knockoffs, but 100% authentic products. Following the trail of clues, the company found the store selling these products; not only did the store owner freely confirm they sold such branded products, they were also not fake but instead acquired as second-hand branded goods and repaired, resold and thereby recycled back into the market. The shops purchase price was on par with other second hand goods while the selling price was equivalent, or a little lower, to the genuine product price. The company wanted to sue the store, fumbling about for a legal basis for such proceedings, but could not find one. The question is whether the recycling of products – repairing and selling another company’s branded goods – is allowable?

Does Vietnamese law open the door to such operations?

The recycling of branded goods is no longer a massing of scraps or junk as in the past, but has become a lucrative business. Starting from an initial idea of saving materials, focusing on fundamental values of the product or even environmental protection, people repaired and recycled second-hand products (often of a famous brand) and resold it for profit based on prestige and reputation of the brand affixed to the product. This may include the purchase of old car parts, restoring and assembling branded cars subject to protection and selling them; the purchase of old pants, shirts, bags, briefcases, watches which are refurbished and or the addition of some details and selling for profit. These recycled products are aimed at the downscale market segment – consumers who wish to have a product with brand prestige; affordability without compromising quality.

Legally, according to Circular 37/2011/TT-BKHCN dated 27/12/2011 (“Circular 37“) of the Ministry of Science and Technology, the reuse, repair and recycling of branded products and product packaging is legal unless such actions confuse consumers about the commercial origin of the product, such as if the product clearly displays information about allowing the re-use, repair and recycling of the product and product packaging makes it clear to consumers as to the commercial origin of the product.

Of course these are technical legal issues in need of discussion, such as what is the commercial origin” of a product, what are the criteria for determining commercial origin and who has the right to assess or certify the commercial origin of the product. In essence however, as defined above, repairing and recycling products and packaging for a protected brand are not unlawful as long as the of reuse or repair has been noted and visible.

Making profits on the Achilles heel of big brands?

So does the law permit reuse, repair and recycling of branded goods and on what basis? The final answer is whether the rights of the trademark owner for the products sold on the market have been fully exploited or not.

In this regard, Article 125.2.b of the Law on Intellectual Property (“IP”) provides that the trademark owner has no right to prohibit others from circulation, import and exploitation of the use of the products that are legally launched on the market except for those that are not sold by the product originator or his dealer. Decree 103/2006/ NĐ-CP also give similar explanations. When selling goods on the market, the originator enjoys profits from the product i.e. the right to commercially exploit their products, however after the sale they have no more rights to such products or subsequent profits. Thus, for the commercial brand, Vietnam applies the principle of international rights exhaustion – once a product is sold in any market in the world, all IP rights of this product has been fully exploited and brand owners have no supplementary discretion or control over its circulation.

The existing laws essentially give a product purchaser in the Vietnamese market trading rights over repaired and recycled goods providing that the purchaser does not mislead consumers to mistake the repaired goods with original goods. For example, an imported golf ball which has been used but then reconditioned by removing the outer layer, painting, pasting or covering a new layer and clearly noted as being “used” in the shiny box, is fit for lawful sale in the Vietnamese market. Thus to the present time, IP Law has been supporting the business activities of repairing and recycling goods. This is a real and present “threat” to well-known brands and at the same time is a potential niche market for agile and savvy businessmen.

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